Pacific Energy Company’s balance sheet includes the asset Iron Ore Rights. Pacific Energy paid $3.0 million cash for the right to work a mine that contained an estimated 240,000 tons of ore. The company paid $70,000 to remove unwanted buildings from the land and $79,000 to prepare the surface for mining. Pacific Energy also signed a $38,200 note payable to a landscaping company to return the land surface to its original condition after the rights to work the mine end. During the first year, Pacific Energy removed 35,500 tons of ore, of which it sold 28,500 tons on account for $39 per ton. Operating expenses for the first year totaled $258,000, all paid in cash. In addition, the company accrued income tax at the tax rate of 40%.

Requirements

1. Record all of Pacific Energy’s transactions for the year. Round depletion per unit to the closest cent.

2. Prepare the company’s single-step income statement for its iron ore operations for the first year. Evaluate the profitability of the company’s operations.

3. What balances should appear from these transactions on Pacific Energy’s balance sheet at the end of its first year of operations?